Snapshot: China Life Sciences Industry

“China’s pharma market China is undergoing a boom in laboratory CHINA OVERVIEW

continues its rapid annual growth infrastructure resulting from a sustained
Population: More than
rates of approximately 20%” increase in government research budgets, 1.328 billion people, nearly
investment by multinational pharma companies, a quarter of the world’s
and government healthcare funding initiatives. The annual growth rate of the population

pharmaceutical market remains consistently strong at approximately 20%. Urban Population: 557m
Urban Setting: 49 cities
China is a highly localized and fragmented market, but the major local markets with a population >1m;
are very attractive. Due to this fragmentation, distribution is complex requiring There will be 219 cities
localized strategy for comprehensive coverage. with >1m by 2025
Size: Roughly the same
Qualified care giving staff is a significant problem, as is general access to modern land mass as the US
healthcare. While pressure on the healthcare system may limit future growth,
Languages: More than 235
China’s growing middle class is expected to reach 700 million by 2020, which distinct languages
drastically increases the potential of many to afford healthcare. GDP (PPP): US$7.18 trillion
(2008 est.)
Healthcare Funding & Infrastructure: GDP Real Growth Rate:
• The government is experimenting with various solutions to improve healthcare and equity of care 9.8% (2008 est.)
delivered across the country. Currently China ranks fourth from the bottom in health equity.
GDP per capita (PPP):
• China has several multisite hospitals with beds in the 3k-4k range; reportedly, the largest single site US$6,100(2008 est.)
hospital, in Sichuan, has 3,400 beds.
• Up to 30% of people of the lowest economic status point to problems with health as their primary Major Industries: Mining,
cause of poverty. Reduced earnings and large out-of-pocket health expenses due to poor health Textiles, Manufacturing,
very often lead directly to poverty. Consumer Products,
Electronics
HEALTHCARE FUNDING SNAPSHOT CHINA US
Total expenditure on health as percentage of GDP 4.5% 15.3%
Per capita total expenditure on health at average exchange rate US$90 US$6,714 REALITIES OF
General government expenditure on health as percentage of total 9.9% 19.1% HEALTHCARE
government expenditure
Private expenditure on health as percentage of total expenditure on health 58% 54.2% Only 40% of the population
Out-of-pocket expenditure as percentage of private expenditure on health 92.9% 23.5% is covered by some type of
Social security expenditure on health as percentage of general 54.1% 28.7% health insurance.
government expenditure on health
Within the healthcare system
NASCENT AREAS OF RESEARCH: Eight years ago, the focus was on molecular biology while four there are no treatment
years ago, protein analysis. Today, the focus is on cell analysis. The government also has a strong guidelines, little regulation,
interest in the validation of TCM (Traditional Chinese Medicine). Life science research accounted for
1.5% of overall R&D spending in China. As a percent of R&D, life science R&D was 0.023%. There is inadequate government
little interest in personalized medicine. Instead the priorities are on issues such as liver cancer and funding, and a high need
rabies. Accessible vaccines are also a major concern. for well trained staff.
TRAINING: 47% of health professionals have only a secondary school diploma while 14% of health Lower respiratory infections,
professionals only have a bachelor degree or above. Medical staff is not well distributed throughout the Hepatitis B, and tuberculosis
country creating inequalities in healthcare service across the country. Hospital accreditation is not well are the major communicable
regulated and is not linked to comprehensive safety records.
diseases. Leading causes of
GOVERNMENT FUNDING: There are short-term uncertainties with government funding. Previous death are heart disease,
funding growth rates were at 40-50%, but are now expected to increase at a rate of 15-20%. However, stroke, and cancer.
the government has a strategic interest in maintaining its commitment to government funding of research.
Most funding is prioritized from the top down. There are PI initiated projects, but these are small in
comparison to centrally determined priorities. Beginning 5 years ago, there has been a steady increase
in government research funding – from 2.5b RMB in 2004 to 8.2b RMB in 2009 (US$365m to US$1.2b).
Many top lab directors seek to build showcase facilities.

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 China Pharmaceutical Market Size (Ex-Manufacturer Value)
Pharmaceutical TENDERS
50
Industry Currently, the government
) hires independent 3rd party
• China’s pharmaceutical market 40 -’11
(’08 agents to run tenders.
size has grown rapidly with a 9%
R1
AG
CAGR of 21.6% (2003-2007). 30 te dC
ima The tender system is an online
Est
• China is projected to be the - ’07) process with a typical timeline
20 (’03
5th largest pharmaceutical 1.6% of 20 days.
R2
market by 2011 for ethical and CAG
OTC drugs at ex-factory levels 10 Hospital tenders are organized
excluding TCM. on a variety of levels –
• Multinationals have about 0 individual hospital, city or
2003 2007 2008 2011 2012
28% of the total market share. province. Hospital tenders
They have so far invested about IMS Market Prognosis 2008 tend to be mere formalities
US$3 billion into manufacturing sites in China. with the outcome decided.
• The system lacks a clear concise government policy to coordinate Hospitals may be require
stakeholders and policies within the pharmaceutical sector. an additional 20-30%
• The availability of medicines is affected by the lack of a generic “Only 40% of the “commission”.
substitution policy and the lack of a medicine pricing policy.
population is covered The government is seeking
• Safety standards for drugs, blood, hospitals, and laboratories to implement large scale
are inconsistent and enforced differently from province to province. by some type of
centralized tenders across
health insurance.” the entire system.
Regulatory Challenges
The government is also
Product registration in China can be a long and expensive process.
seeking ways to drive down
• Research is an easier segment to enter. Requirements are lower and the registration process faster. cost by stipulating margins
• Registration for clinical is a much larger commitment. SFDA, the government authority in charge and requesting details of CIF
of safety management of drug, food, health food and cosmetics, requires instrument and reagent costing in order to improve
tests from 3 hospital installations with 1k samples. transparency.
• The clinical registration timeframe is generally 18-20 months; registration licensing has been
extended from 4 to 5 years.
• The Chinese government is highly concerned with its reputation due to the country’s recent
string of highly publicized safety lapses. Consequently, SFDA has become more conservative “There has been a steady
with more stringent safety requirements. increase in government
• There is a backlog of registrations experiencing delays.
research funding over
• Relicensing delays that result in lapsed licenses frequently result in companies illegally selling
unlicensed products in China. the past 5 years –
now reaching US$1.2b”
Strategic Implications: Investment & Risks in Healthcare
REASONS TO INVEST INVESTMENT RISKS
• China is undergoing a boom in laboratory infrastructure • The market is almost entirely government funded; any
resulting from a sustained increase in government research change in priority could create a significantly different
budgets and investment by multinational pharma companies. environment.
• Healthcare funding is a priority for the government. • Customer support may be prohibitively expensive since
• CAGR of government research spending over the past skill levels are low and Chinese customers do not pay
5 years is 27%. for service.
• Cancer testing alone is growing at 30% per year. • An unknown brand name from a small company may be
viewed by customers as risky.
• China’s pharmaceutical industry is expected to continue
its strong annual growth of approximately 20%. • Pressure on the healthcare system may limit growth.
• A growing middle class is expected to rise to 700 million • Registration is complex and the required investments in
by 2020 from 150 million today (defined as those earning time and money are ultimately unknown.
more than US$10k per year).

Woodward Partners is a management consulting firm that provides strategic assistance to help firms grow in Asia. This report reflects a few of
the recent findings Woodward Partners generated through in-depth interviews with key opinion leaders and analysis of the market realities of the
hospital, pharmaceutical, and healthcare markets in China. Contact Woodward Partners for further information on how to navigate within
the healthcare, life science industry in China. Please email Woodward Partners at inquiry@woodward-partners.com or phone +1 503 345 0764.

For more information, please visit www.woodward-partners.com